Advice From The Trenches of The ICO Underground – Top Lessons From 8 Experienced Investors

We've taken to the streets once again to ask our knowledgeable network of crypto advisors what lessons they've learned in the past years of ICO investing.

Here's the exact question we've curated answers for,

"What 3 different takeaways can you share about ICO investing?"

The information provided here is for informational purposes only and should not be seen as investing advice. Our opinions on this site are only that, if you are considering an investment into cryptocurrency or anything we speak about on this site, please advise a trusted financial professional first, before doing so.

Right from the get-go, you'll see these answers are the no-BS type. They cut straight to the wisdom and although we don't agree with everything (click here to see why), we definitely know it comes from the heart.

An equity investment means a long and hard road towards a ground-breaking company, that requires careful product iteration and capital life-cycle management; it requires talented and experienced hands, that know how to translate the pace of crypto into scalable products of quality.

Other investors are key, as well as the team credentials and a strong sense for risk elimination. Most token investors consider 2 dimensions: the underlying product, and the token-market.

The 2 are mostly unrelated. The former serves as the starting point for strong investors and advisors, and that reputational underwriting then needs to yield hype, so the token gets marketed for potential volume on exchanges.

I would say that 95% of token holders of any project will not hold said token after 24 months, which is the average time any token project and blockchain application will need to hit sufficient market-traction to drive up organic token demand. Personally, I no longer invest in ICOs for that reason.

How to tell if a project will be a success:It depends on your definition of success. For me, that is fundamental enhancements in the underlying technology driving blockchains ecosystem supports by token-economies.

The immediate fiscal return only interests me to further invest them into more technical progress. The inherent incentive structures of crypto allow us to continuously deploy capital to reach our goals of systemic-trust across value chains. Strong Venture backers with deep funds are also a good indicator.

1. Right now the top ICOs are focusing more on the pre-sale stage than public sale stage. This is due to regulation, simplicity, and overall more institutional investors entering the space.

​This is making a race for allocations where investors need to show more strategic value beyond cutting a check. This has been the biggest takeaway over the past 3 months.

2. The landscape is changing. Even projects that have hit hard caps have found it tough to find the liquidity and volume needed to appreciate on the open market. The 2018 ICO landscape is much different than 2017.

3. Rise of the ""compliant"" ICO: the concept of a utility token is obsolete in the United States. Token sales must be fully securitized. Platforms like Templum are helping ICOs do just this.

1. Scams account for more than 75% of all new ICOs. No-one should invest without thorough due diligence, which is time consuming and frequently costly.

I was personally taken in by a Nigerian criminal organization after I spoke for over an hour with their head of development. The man was awesome.

Turned out he was paid by the company to pretend to be head of development. He was in fact one of the hundreds of "hired guns" - extremely competent and charismatic developers, financial specialists etc. that hire themselves out to these organizations in order to pretend whatever pretense they are being paid for.

After I was scammed, we instituted a policy of thoroughly auditing white papers and every other aspect of an ICO project using white hat hackers who are able to dig into the background of every team member, identify plagiarism within white papers, etc.

2. ICOs that focus in social media or raw Blockchain technology tend to be the most successful. This is sad, in that true gems of creativity in other arenas are often overlooked.

3. Virtually no-one buys ICO coins for the purpose for which they were intended. They instead look at these tokens purely as an investment.

Thus is perverting the very purpose for which cryptocurrencies were created - to free ourselves from our bondage to the existing political/economic power structure using the power if the Blockchain to distribute power and wealth.

This cannot be done if we pervert the Blockchain into a tool of greed - which is exactly what the existing power structure us all about."

1. I'm a firm believer that no matter how great the ICO appears or how ambitious its goals are, the team's members are the most important factor in a coin that will succeed long-term. Research is required to verify the team members are real as some ICOs are using fake profiles on their websites.

Recently, an ICO used the actor Ryan Gosling's picture on their site and listed him as their graphic designer.

2. It's also important to know how high their hard cap goals are. If their hard cap is over $50 million, often times the project has already peaked, and it's difficult to greatly increase their market cap once the coin is released on exchanges.

Many people will sell the coin as soon as it's listed on an exchange, and the coin will have difficulty reaching their financial goals.

3. Ideally, the ICO should have a minimum viable product (MVP) available for the public. If they don't have a beta product before the ICO, there's more potential for the team to breakup or for the founder to run off with all the funding."

a. At the moment the ICO market is oversaturated with new projects, with upwards of 90% of them being crap and/or scams.

b. There is no rush to invest or get a bonus on tokens, especially if you haven’t done your due diligence. Often times, because of FOMO, people will quickly throw money into an ICO before its deadline hoping to make a quick return.

Don’t give in to that pressure, the industry is just getting started and there will be a ton of great projects launching ICOs in the years to come.

2. If it doesn’t make sense, or seem right, don’t invest in it.

a. ICO project X has a 50 page whitepaper, filled with technical jargon and confusing charts, team is keeping a substantial percentage, there aren’t any safeguards to keep early investors from selling, 12 developers and no product; this probably won’t be a good investment.

b. Satoshi’s whitepaper was only 8 pages with the 9th being a reference page and there aren’t many projects out better. So if Satoshi can explain Bitcoin in 8 pages, using simple terms, so can these other projects. Long white papers are a red flag as no high level investor will have time to comb through them all.

c. Places like AirBnb started from a Silicon Valley Y-Incubator. Limited resources and only a couple of devs, yet built a multibillion dollar business and had a working product before they launched. A team of 8 devs on an ICO, with no working product is another red flag.

3. Have an investment plan in mind for each ICO project.

a. There will be some sought after projects that can reap big returns the day they launch on a big exchange, others are a work in progress, with a good community and team behind them, but don’t expect to profitable until years later.

b. Know what type of realistic return you are looking for and the timeframe you believe it can be achieved, before you invest."

1. To start with, one should first evaluate the overall application of the project – is it an infrastructure protocol or a consumer-oriented application. Market fit and timing is essential.

What you don’t want to do is invest in ventures promising unrealistic solutions or ones which would take uncertain amount of time to deliver the tech and UI/UX. By the time they do, the industry’s landscape may change so much, the tech is no longer relevant.

2. Another thing to pay attention is the Team. One should investigate who are the people behind the project, are they working under one roof and know each other. Is the Core Team bringing in advisors from their respective fields to provide strategic and operational support?

Are they establishing partnerships to cooperate with other market leaders instead of trying to do everything by themselves. It is usually a sign of inadequate expectations or non-sensible assessment.

3. Thirdly, always check the token model. Think whether it has an intrinsic value as a long-term investment. It closely ties with my other two points.

A good use-case for utility tokens is a rare sight in the space. I see more security tokens coming in the nearby future.

We spent a great deal of time structuring our architecture and making ORCA token the sole medium of exchange in our Open Banking platform to ensure that ORCAs stay always in demand.

1. If it sounds too good to be true, then it probably is. Some projects promise large guaranteed returns.

2. Do not invest anything more than you are willing to lose. Even if there is a large potential in ICOs, this is a very volatile market so invest wisely.

3. Do some background research on an ICO's team. There were some who were able to get successful scam exits just because people weren't negligent enough to even do their homework. One ICO even got away with $800,000, using Ryan Gosling's photo as one of their teammates

1) I'm still wary of ICO's taking too much of the pie for themselves. If an ICO states that 70% of the funds raised go to project development, but if the project loses steam after 6 months and gets forgotten, what's to prevent the team from just quietly keeping the unused funds for themselves?

2) I see it as a major red flag if an ICO doesn't get listed on a reputable exchange within a reasonable timeframe after the token sale ends. It could be that the exchanges see something problematic with ICO, or it could be that the founders are so paranoid about regulation that they simply can't make rational decisions for the company. Either way, I'd avoid.

3) From strictly a price standpoint, there isn't much incentive to get in on a 10-20% public sale discount when token prices almost always drop by that amount in the first few days of being traded on an exchange.

This happens because founders rush to cash in the percentage of their token allocations that become unlocked immediately after hitting an exchange, and this results in a temporary price decrease. A prudent investor would skip the ICO altogether and just buy the token after the initial price drop occurs.

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Final Thoughts

A large portion of the answers dealt with the importance of the team. Although this isn't big news, we can see how it's apparent that many people aren't doing enough on the due diligence side. This is something we're constantly trying to improve upon ourselves but of course, there's always a risk.

My favorite comment on Satoshi's white paper only taking 8 pages to explain the concept of Bitcoin, while many ICOs are taking many more pages to explain a possibly less valid idea.

In any case, take these hard lessons with you into your next ICO endeavour and never ever forget to run your own due diligence.